Few circumstances can destroy a restaurant’s business as quickly as food borne illnesses.
Whether fair or not, food borne illnesses shatter public trust in the restaurants where they occur. Even the most safety-conscious establishments are susceptible, and failure to prevent an outbreak, or respond appropriately if one occurs, can have disastrous consequences. Researchers from the Johns Hopkins Bloomberg School of Public Health found that the cost of a food borne illness outbreak ranged from $3,968 to $2.6 million depending on the type of restaurant. These amounts pale in comparison to confidential settlements that have been paid by, and judgments that have been rendered against, defendants in outbreak-related lawsuits.
Given the stakes, restaurants must implement robust food safety policies. The costs associated with a food borne illness outbreak far outweigh the costs of implementing precautionary measures. The old adage “an ounce of prevention is worth a pound of cure” was never more apt. Restaurants can also take several specific steps to protect themselves in the event an outbreak does occur, which will hopefully minimize the damage and allow the business to survive.
In the event of a food borne illness claim, every aspect of a business that can impact food safety will be scrutinized, from selection of vendors and knowledge of each vendor’s food safety practices, to the restaurant’s own policies and procedures including cold chain management, storage practices, inventory management, sanitation and food preparation. Each restaurant should have a well thought out and documented food safety program and should maintain records demonstrating compliance with that program. Consultation with a food safety expert should be considered, but the FDA and USDA websites provide a wealth of information on these topics. Having a robust and well documented food safety program is not a guarantee against a food borne illness, though it should dramatically reduce the likelihood of such an occurrence.
Food safety policies and procedures cannot be aspirational. Restaurants must “say what they do and do what they say.” Failure to strictly follow written policies and procedures can lead to problems with regulators and provide ready ammunition for lawyers.
A. Vendor Contracts
Restaurants are often the targets of food borne illness lawsuits despite the fact that the outbreaks are often caused by pathogens that enter restaurants through the food products provided by vendors. Restaurants should consider strategies to manage risk including through the use of well-crafted vendor contracts. Restaurants should consider requiring vendors to provide express warranties in such contracts, making it clear that the products being provided are fit for their intended purpose, are not in any way contaminated, and are otherwise in compliance with applicable state and federal food codes. The vendor agreements should also include insurance procurement requirements with specified dollar amount limits, which name the restaurant and all of its affiliate, subsidiary and parent companies as additional insureds under the policy. This protects the restaurant in one of two ways. First, it provides additional insurance to help cover the potential liability from a lawsuit. Second, a vendor’s failure to procure the required insurance provides an independent basis for a breach of contract claim against that vendor.
Restaurants should also consider demanding broad-based hold harmless agreements with their vendors. A well-structured hold harmless agreement should include the named entity and all of its related subsidiaries and affiliates. Ideally, this provision will trigger in the event of any allegation that the food product delivered to a particular company was adulterated or contaminated with a food borne pathogen. Such agreements should require vendors to “defend, indemnify and hold harmless” the restaurant. Such provisions shift the risk of loss from the restaurant to the vendor. A good example of such clauses follows:
- The articles contained in any shipment or delivery made by Vendor are hereby guaranteed, as of the date of the shipment or delivery, (a) to not be adulterated or misbranded within the meaning of the Federal Food, Drug, and Cosmetic Act (the “Act”), (b) to not be an article which cannot be introduced into interstate commerce under the provisions of Sections 404 and 405 of the Act, and (c) to be in compliance with all applicable federal, state, and local laws.
- Vendor agrees to defend, indemnify and hold harmless Restaurant … from all actions, suits, claims, demands and proceedings, and any judgments, damages, losses, debts, liabilities, penalties, fines, costs and expenses (including reasonable attorneys’ fees) resulting therefrom, whether arising out of contract, tort, strict liability, misrepresentation, violation of applicable law and / or any similar cause whatsoever related in any way to the Vendor’s products, to the maximum extent provided by law.
- Vendor agrees to maintain insurance coverage with reputable insurance companies covering … commercial general liability, including product liability and excess liability, all with such limits as are sufficient in Restaurants’ reasonable judgment, to protect Vendor and Restaurant from the liabilities insured against by such coverages… In addition, Restaurant shall be named as an additional insured … The obligation to provide insurance set forth in this paragraph is separate and independent of all other obligations contained in this Agreement.
Further provisions to consider include venue selection, arbitration and selection of counsel clauses.
Vendors may be reluctant to enter into such contracts, and smaller businesses may not have adequate leverage to require them. Many businesses operate with invoices only, with little in the way of guarantees or risk allocation. Restaurants should at least be familiar with such contractual provisions to make sure they are not taking on more risk than they bargained for, and to develop strategies to manage that risk.
B. Food Traceability
As a result of the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (the Bioterrorism Act) and the Food Safety Modernization Act (FSMA) most stakeholders in the food supply chain are required to maintain “one back, one forward” traceability of food products. Entities are required to establish and maintain records to allow for the identification of the immediate previous sources and subsequent, direct recipients of food. While not typically governed by these acts, restaurants should implement and maintain record retention policies to ensure compliance with these laws and regulations, because they will be held out as industry standards. Moreover, a solid paper trail can do much to benefit restaurants in the event of an outbreak. Such documentation is essential to determine the source of a food borne illness outbreak, usually upstream of the restaurant, and in some cases prevent additional illnesses.
C. Recall Insurance
The changes to food safety laws have resulted in more frequent and widespread food recalls. Restaurants should consider obtaining recall insurance. While not widely utilized, recall insurance can defray the costs associated with conducting a recall, including the lost product that cannot be sold.
Restaurants should be proactive when an outbreak does occur. It is important to obtain knowledgeable counsel as soon as there is a concern. A good lawyer can act as a liaison with various health agencies and potentially impact the scope of the investigation and make sure that the restaurant is not being unfairly targeted. Counsel can also potentially impact the scope of recalls and help mitigate potential losses. Investigators are human and too often investigations follow the path of least resistance, rather than being a true, fact-finding enterprise. Restaurants must be prepared to do their part to ensure accountability in the investigation. Investigatory confirmation bias disadvantages the food provider and might lead to an unfair outcome.
Engaging counsel provides a way to accurately and safely analyze the situation and assess the risks, while protecting such efforts with the attorney client privilege and work-product doctrine. Restaurants may also consider retaining a public relations and strategic planning firm if they have the resources to do so, though such efforts may not be shielded by the privileges noted above. Experienced counsel can assist there, too.
Fortunately, food borne illnesses are rare; especially considering the volume of food prepared and consumed everyday versus the number of documented illnesses. But illnesses do occur and experience with mock and actual juries demonstrates that people get very upset when the safety of their food is compromised, to say nothing of the sometimes devastating impact on victims. Restaurants should devote significant resources to developing a robust food safety plan. Since it is impossible to completely prevent all food borne illnesses, restaurants should also ensure they are prepared in the event of an illness or outbreak. Adequate preparation should enable any business to “weather the storm” and survive a food borne illness outbreak.
 Note the referenced clauses are not complete and have been edited for space. Independent counsel should be consulted to tailor contracts to specific situations.